It’s all hands on deck at ASML to give chipmakers the additional wafer output they all crave. Curiously, no one predicted this massive explosion in demand.
Even without pandemic-driven disruptions, chip demand would be booming right now, and will continue to boom for years to come. According to some estimates, the semiconductor market size will double to a trillion dollars by the end of the decade. And yet, nobody saw it coming.
Why not? To answer that question, ASML’s Roger Dassen tells about some remodeling he did at home recently. More specifically, about the new hardwood floors that have been put in. “These come with a sensor-directed climate conditioning system that prevents the wood from expanding or contracting too much. I’m no stranger to technological innovation, but I must admit I wasn’t prepared for that,” said the CFO during an interview following the presentation of Q4 2021 and full-year results.
Dassen’s point is that semiconductor-powered digital functionality is currently being added to traditionally ‘wireless’ products at a rate that has caught everybody off guard. “The proliferation of IoT applications has been widely underestimated.”
Another factor is die size. Decisions about semiconductor manufacturing capacity expansions are ultimately based on wafer demand. Wafer demand depends on the expected sizes of the dies that will be produced. If these chips prove larger than expected, more wafers will be needed than initially projected.
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“We’ve seen this with image sensors, for example,” said Dassen. “Their die sizes have increased massively, even last year. This is one major reason why TSMC has recently announced a new mature-node fab in Japan, together with Sony [a major supplier of image sensors, PvG]. Such effects manifested themselves in pockets of the industry, but its ramifications for the entire ecosystem haven’t been picked up.”
Disturbances
The structural trends driving wafer demands mean ASML has some catching up to do. During a press conference, CEO Peter Wennink estimated that the current demand for lithography equipment and related products is 40-50 percent higher than ASML can provide. He added, however, that it’s extremely challenging to gauge true semiconductor demand – and hence semiconductor manufacturing equipment demand – in a market that’s boiling over.
Last quarter, the Veldhoven-based equipment maker already announced unprecedented plans to add capacity fast. Annual DUV unit manufacturing capacity will grow by 50 percent, for EUV scanners it will double. In terms of wafer output, ASML is looking to double DUV capacity and more than triple EUV capacity. It will take until at least the end of next year before ASML can solve current supply constraints, said Dassen.
Ironically, ASML’s capacity expansions intended to remedy the chip shortage are hindered by that very same shortage. “It’s a daily fight,” Wennink admitted. Not so much at system integrator ASML itself but downstream in its extensive supply chain. The company has started a centralized “scarcity center” to combat shortages. “We identify which semiconductors are in short supply, figure out which semiconductor companies make them and ask for help. After all, it’s in their best interest too that our shipments aren’t delayed. So far, we’ve been able to manage,” Wennink said, keeping his fingers crossed. Dassen added that “there’s no doubt in his mind” that ASML would be able to scale up faster without chip shortages and other corona-related problems, such as well-above-average absenteeism.
Despite massive investment plans from all leading semiconductor manufacturers, some propped up by government hand-outs, ASML isn’t worried about overshooting demand. “Ultimately, it’s about whether you believe society needs more technology solutions that are driven by semiconductors. At ASML, we do believe that, and in fact, we see proof of that. Sure, when a lot of capacity is added at the same time, it will give some short-term disturbances. But longer-term, I don’t see an issue.”
Main picture credit: ASML